SECTION 1: Market outlook

1.1 What is the outlook for US investment into your
jurisdiction over the next 12 months, given the new US
administration's protectionist focus?

From a foreign policy perspective, as the US has withdrawn
from the Trans-Pacific Partnership (TPP) and is hoping to
renegotiate Nafta, CAFTA-DR has gained more relevance for
Guatemala. This could draw investment to Guatemala, not only
from the US but from other countries as well. However, the
protectionist focus of the US is not a determinant factor
driving US investors away from our jurisdiction.

1.2 Are there any industries in particular that you think
are more likely to be affected by the US's new economic
stance?

No, since CAFTA-DR has been left out of the 're-negotiation
or withdrawal' agenda of the US Trade Representative and
Department of Commerce.

SECTION 2: Approving foreign investments

In Guatemala, there is no foreign investment approval per
se. Depending on the sector, it may be a requirement to have a
branch or a legal entity incorporated within the jurisdiction.
This takes approximately two months. After being incorporated,
and depending on the sector and nature of the business, the
investment may require certain permits. The timetable will
vary, depending on the complexity of the permits. As a general
reference, it takes approximately between five to six months to
have a company fully operating within the Guatemalan
jurisdiction.

2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?

From a general perspective, for an enterprise organised
under foreign law to be established in Guatemala, in any form,
it must designate a determined amount of capital for its
operations in Guatemala and execute a guarantee in favour of
third parties to an amount not less than $50,000. When
establishing a subsidiary, 90% of the company's employees must
be Guatemalan workers and these workers must receive at least
85% of total wages paid. These percentages can be modified in
case there is a need to protect the national economy or there
is a lack of technical Guatemalan personnel.

For infrastructure, only Guatemalans by birth and companies
owned 100% by Guatemalans can acquire the ownership of land
within 15 kilometres of the border. Moreover, foreign nationals
require an authorisation from the government to acquire
ownership of state-owned real estate located in urban zones and
for which rights were registered in the General Property
Registry before March 1 1956 in the following locations:

a three-kilometre-long strip of land along
the ocean;

200 meters around the lakeshores;

100 meters on either side of the navigable
rivers; or

50 meters around any spring that serves as
a source of water for the population.

In the natural resource sector, only Guatemalans by birth
and companies owned 100% by Guatemalans can be granted title to
rent or use state-owned lands in the Department of El
Petén, which is an environmentally protected area. Only
Guatemalans by birth or enterprises organised under Guatemalan
law may exploit and renew forestry resources. The subsoil is
property of the State of Guatemala, so certain rights are
reserved to the State to exploit it. Moreover, Guatemala is
part of the 169 Convention of the International Labour
Organization; hence, whenever a project is intended to have an
impact on the indigenous community, consultations shall be
held.

Apart from the rights mentioned above, the State does not
have any additional rights other taxes.

2.3 Which authority oversees competition clearance and give
a brief overview of the merger clearance process?

Currently, there is no Competition Authority. Guatemala is
in the process of approving its first Competition Law.

2.4 Are there further approval requirements that foreign
investors should be aware of?

None, apart from the ones mentioned in sections 2.1 and 2.2
above.

SECTION 3: Investment techniques

3.1 What are the most common legal entities used for US
investment in your jurisdiction?

A branch is one of the most common legal entities, and
whenever a Guatemalan entity is created the forms most often
used are the sociedad anónima or sociedad
de responsabilidad limitada.

3.2 What are the key requirements for establishment and
operation of these legal entities?

The minimum paid capital requirement is of approximately
$660. The entity must register a legal representative with TAX
ID in Guatemala.

SECTION 4: Dispute resolution

4.1 How effective are local courts' enforcement and dispute
resolution proceedings, and what should US investors be
particularly aware of?

The extremely extended period of time it takes to reach a
definitive outcome impacts the effectiveness of our judicial
system's proceedings and enforcement. This length of time
depends on the type of process. After receiving a definitive
sentencing, there is an executive procedure that should be
followed in order to enforce the content of the resolution. The
average period ranges between five and 10 years after going
through all the instances, ordinary and constitutional.

Aside from the local particularities mentioned above,
investors should be particularly aware that Guatemala has a
free trade agreement with the US (CAFTA-DR), which includes an
investment chapter. For the investment to be covered by
CAFTA-DR it should be considered as originating from the US.
Moreover, Guatemala is part of the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New
York Convention), which facilitates and secures the enforcement
of foreign awards.

4.2 Does your jurisdiction have a bilateral investment
protection treaty with the US and is that commonly used by
investors?

Yes, as mentioned in section 4.1, the CAFTA-DR contains an
investment chapter protecting investors from the state
parties.

4.3 Do local courts respect foreign judgments and are
international arbitration awards enforceable?

Yes, as mentioned in question 4.1., Guatemala is part to the
New York Convention.

SECTION 5: Forex controls and local operations

5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?

None, Guatemala's regulations stipulate a free circulation
and exchange of currency. Moreover, Guatemala has a very stable
inflation rate and policy.

SECTION 6: Tax implications

6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for US investors
into the country?

Having a territorial tax regime in place within our
jurisdiction and given the lack of reciprocal tax arrangements
between Guatemala and other countries, there is no particular
tax structure or favourable intermediary tax. Nevertheless,
there is always a possibility to generate tax efficiencies by
using alternative jurisdictions to create an efficient tax
operating plan. Since transparency and information sharing is
becoming a global standard, tax structures and intermediary tax
jurisdictions will tend to disappear.

6.2 Has your jurisdiction benefitted from the recent trend
of US companies pursuing inversion structures? If yes, do you
believe this will be threatened under the new
administration?

Yes, our jurisdiction has benefited since US companies have
invested in our country given our lower manufacturing costs and
certain tax benefits. We believe this will not be threatened by
the new administration since, from a competitive perspective
and investment perspective, Guatemala manufacturing costs will
remain lower than US costs and taxes below the 35% US corporate
tax rate.

6.3 What are the applicable rates of corporate tax and
withholding tax on dividends?

Corporate tax options:

25% corporate tax, having the possibility to deduct cost
and expenses that are specifically included in the law;
before the application of said rate; or

7% corporate tax, not having the
possibility of deducting cost and expenses but paid on a
monthly basis and directly applied over invoiced amount.

Either option is available for the first time when the
company or corporation is incorporated. Changes from one regime
to another can be done every year at the end of the fiscal
year.

Withholding tax on dividends:

5%, after the payment of corporate tax.

6.4 Does the government have any tax incentive schemes in
place?

Yes, the Guatemalan government has tax incentive schemes in
specific areas of investment. The tax incentives include the
exemption of income tax and VAT for a certain period of time.
Tax incentives schemes are usually granted to companies
incorporated in free trade zones and/or active in specific
investment sectors, such as energy, oil, gas and natural
resources.

6.5 Are there any reciprocal tax arrangements between your
jurisdiction and the US? If so, how can they aid
investors?

At the present time, there are no reciprocal tax
arrangements between Guatemala and the US.

6.6 Do you think that the introduction of new rules and
regulations in the US, such as the Bring Jobs Home Act, is
likely to have an impact on investment into your country?

In our opinion, apart from the flaws in the current Bring
Jobs Homes Act, the introduction of similar regulation could
only have an impact on our jurisdiction if it is designed in
such a way as to reduce US manufacturing costs and taxes to a
level below those in our country.

Martin Barillas is a senior associate in Pacheco
Coto's Guatemalan office. He is in charge of the
international trade division, advising clients on their
import/export performance as well as investment
matters.